“Part 7 of an eight-part series on the lessons to learn from stock market history explains why, despite the constant temptation to trade, the best thing that investors can do once they’ve built a portfolio that matches their attitude to risk is… nothing. Actually, that’s not strictly true, because it is wise to rebalance your portfolio either once or twice a year.”

Part 7 Do Nothing http://youtu.be/eJdgThTpAJU Reason people have had a better experience investing in real estate is that they are forced to sit still … they can’t buy and sell easily … even though returns on real estate have been much lower historically. We act on our emotions and doing something tends to mean doing it at just the wrong time. Lots of changes means lots of costs. Comment I’ll add about automatic rebalancing – it buys and sells stuff you wouldn’t do emotionally – by selling high and buying low – the opposite stuff you’d buy or sell.

“In the final part of this video series, we recap the six key lessons that investors can learn from studying stock market history. There are better times to invest in equities than others, but – crucially – we only know whether now is a good time or not with the benefit of hindsight. The good news is that, even if you invest just as markets are about to tumble – as they did in 1929, for example – you will be rewarded if you hold tight and resist the temptation to keep tinkering with your portfolio. ”

William Bernstein, in Rational Expectations on page 17, discusses a group of investors with these characteristics: “… a realistic appraisal of their true, under-fire risk tolerance; second, an allocation to risky assets low enough, or a savings rate high enough , to allow them to financially and emotionally weather a severe downturn; and third, an appreciation of market history (my emphasis connecting to the theme of this video series) … In other words, this elite group possesses not only patience, cash, and courage, but also the historical knowledge (my emphasis again for the same reason) informing them that at several points in their investing career, all three will prove necessary. Finally, they have the foresight to plan for those eventualities. The last point is perhaps the most important …”

About Larry Frank Sr.

As an MBA and CERTIFIED FINANCIAL PLANNER™ practitioner, I help people make sensible plans for a successful retirement. I'm also the author of Wealth Odyssey, a book about financial planning. My retirement planning research is published periodically in the Journal of Financial Planning.